The Endogenous Constraint: Hysteresis, Stagflation, and the Structural Inhibition of Monetary Velocity in the Bitcoin Network (2016-2025)

ArXiv ID: 2512.07886 “View on arXiv”

Authors: Hamoon Soleimani

Abstract

Bitcoin operates as a macroeconomic paradox: it combines a strictly predetermined, inelastic monetary issuance schedule with a stochastic, highly elastic demand for scarce block space. This paper empirically validates the Endogenous Constraint Hypothesis, positing that protocol-level throughput limits generate a non-linear negative feedback loop between network friction and base-layer monetary velocity. Using a verified Transaction Cost Index (TCI) derived from Blockchain.com on-chain data and Hansen’s (2000) threshold regression, we identify a definitive structural break at the 90th percentile of friction (TCI ~ 1.63). The analysis reveals a bifurcation in network utility: while the network exhibits robust velocity growth of +15.44% during normal regimes, this collapses to +6.06% during shock regimes, yielding a statistically significant Net Utility Contraction of -9.39% (p = 0.012). Crucially, Instrumental Variable (IV) tests utilizing Hashrate Variation as a supply-side instrument fail to detect a significant relationship in a linear specification (p=0.196), confirming that the velocity constraint is strictly a regime-switching phenomenon rather than a continuous linear function. Furthermore, we document a “Crypto Multiplier” inversion: high friction correlates with a +8.03% increase in capital concentration per entity, suggesting that congestion forces a substitution from active velocity to speculative hoarding.

Keywords: Bitcoin, monetary velocity, structural break, transaction cost index, endogenous constraint

Complexity vs Empirical Score

  • Math Complexity: 8.5/10
  • Empirical Rigor: 7.0/10
  • Quadrant: Holy Grail
  • Why: The paper employs advanced econometric techniques like Hansen’s (2000) threshold regression, IV tests, and non-linear feedback modeling, indicating high math complexity. It also demonstrates strong empirical rigor through rigorous data handling (Transaction Cost Index from Blockchain.com), robustness checks, and statistical validation of regime-switching phenomena.
  flowchart TD
    A["Research Goal: Validate Endogenous Constraint Hypothesis<br>Does network friction constrain Bitcoin's monetary velocity?"] --> B
    B["Data & Methodology<br>Data: Blockchain.com (2016-2025)<br>Metrics: Transaction Cost Index (TCI), Velocity<br>Method: Hansen Threshold Regression & IV Analysis"]
    B --> C{"Threshold Analysis<br>Identify Structural Break"}
    C --> D["Regime 1: Low Friction<br>Velocity Growth: +15.44%"]
    C --> E["Regime 2: High Friction (Shock)<br>Velocity Growth: +6.06%<br>Net Utility Contraction: -9.39% (p=0.012)"]
    B --> F["IV Test (Hashrate)<br>Linear model: No significant effect (p=0.196)<br>Confirms Regime-Switching Behavior"]
    D & E & F --> G["Key Outcomes<br>1. Structural Break at 90th Percentile (TCI ~1.63)<br>2. Crypto Multiplier Inversion: Friction +8.03% Capital Concentration<br>3. Velocity Constraint is Non-Linear"]